Arab Countries in Transition Under the Spotlight
IMF Blog, April 29, 2012
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- Authors: Masood Ahmed
- Published: April 29, 2012
Overview
- Author: Masood Ahmed
- Date: April 29, 2012
- Summary: Historic transitions in several Arab countries are coming under increasing strain. Domestic uncertainty over the countries’ future course, compounded by the global slowdown and rising oil prices, took a toll on growth in 2011, and the current year will be equally challenging.
- Core thesis: A joint and sustained effort is needed to help these countries navigate through this challenging period and set out an economic vision that is fair and inclusive.
Clear risks require strong resolve
- Broad consensus at the 2012 IMF-World Bank Spring Meetings: a strong strategy is needed for countries to overcome mounting challenges.
- Immediate macroeconomic challenge:
- Address fiscal and balance of payments imbalances without crowding out private investment.
- Requires controlling wasteful and untargeted spending, especially on subsidies.
- Subsidy reform is politically and technically difficult; adequate social protection must be put in place while subsidies are being phased out.
- In some cases, addressing balance of payments imbalances will require allowing for more exchange rate flexibility.
- Mobilize external support.
- Longer-term growth and inclusion:
- Define policy plans to bring about job-creating growth that benefits all segments of society.
- Piecemeal approaches will not suffice; reform agendas must go to the heart of the economic problems of the past that have fed into the uprisings.
- Key reforms include ensuring equal access to economic opportunities, promoting transparency, improving access to credit, enhancing the business environment, and reforming the education system and labor market.
- Political economy and program design:
- Reform agendas need to be designed in the respective country and enjoy broad political support.
- Economic programs for countries in transition are most likely to be implemented by current and successor governments over 2-3 years.
- Broad political support is crucial to strengthen confidence and to implement programs successfully.
- International responsibility:
- The international community, including regional partners, has a responsibility to support Arab countries in transition by providing necessary financing, market access, and technical assistance.
Regional events and engagement
- IMF Management participated in regional and international forums with a focus on the Middle East and North Africa (MENA).
- Managing Director Christine Lagarde met with ministers of finance and central bank governors from the region to listen to perspectives and issues.
- Deauville Partnership Ministerial Meeting focused on economic challenges facing transition countries; the IMF provided a background note with a macroeconomic assessment.
- IMF Deputy Managing Director Nemat Shafik participated in a seminar on the political economy of subsidy reform (moderated by Al-Jazeera):
- Seminar focused on experience of countries from MENA and elsewhere in carrying out spending reform, particularly subsidies.
- Observation: subsidies in the MENA region are both unsustainably high and inefficient.
- Speakers discussed addressing challenges of phasing out universal price subsidies, introducing more targeted forms of social protection, and lessons for the MENA region.
- Launch of a light version of the semiannual Regional Economic Outlook:
- Opportunity to present IMF’s latest assessment of the region’s economic situation and outlook and to address questions on the Fund’s engagement with—and challenges faced by—countries in transition.
IMF’s financial contribution and readiness to support
- Actions and engagement cited:
- In early April, the IMF approved a concessional loan for Yemen.
- Discussions are under way with Egypt for possible financial assistance.
- The IMF is providing Libya with the needed technical assistance.
- IMF staff is in early discussions on financing needs and possible support in a few other cases.
- Conditionality and principles for support:
- The IMF remains ready to support programs that maintain macroeconomic stability, promote inclusive growth, enjoy the necessary broad political support, and include adequate external financing from regional and international partners.
- Any reform agenda should be designed and owned by the country.
- The IMF can provide technical advice and lessons of experience from across its membership, and must ensure that the measures in any country’s economic program are likely to achieve their stated objectives.
- The specific choice of measures is best decided by those who will have to implement the program.
- Political consensus is crucial to strengthen confidence and to implement programs successfully.
Source: Arab Countries in Transition Under the Spotlight, Masood Ahmed, April 29, 2012
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